Empire State Realty OP, L.P. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to the Empire State Realty OP, L.P. and its consolidated subsidiaries. This Management’s Discussion and Analysis provides a comparison of our performance for the three month periods ended March 31, 2025 with the corresponding three month periods ended March 31, 2024 and reviews our financial position as of March 31, 2025. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act "), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. You can identify forward-looking statements by the use of forward-looking terminology such as “aims," "anticipates," "approximately," "believes," "contemplates," "continues," "estimates," "expects," "forecasts," "hope," "intends," "may," "plans," "seeks," "should," "thinks," "will," "would" or the negative of these words and phrases or similar words or phrases. In particul ar, statements pertaining to ESRT's capital resources, portfolio performance, dividend policy and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our portfolio from operations, acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). Many important factors could cause actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in the forward-looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) increased costs due to tariffs or other economic factors; (iii) a failure of conditions or performance regarding any event or transaction described herein; (iv) resolution of legal proceedings involving the Company; (v) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (vi) changes in our business strategy; (vii) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from other observatories; (viii) defaults on, early terminations of, or non-renewal of, leases by tenants; (ix) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (x) declining real estate valuations and impairment charges; (xi) termination of our ground leases; (xii) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds; (xiii) decreased rental rates or increased vacancy rates; (xiv) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget; (xv) difficulties in identifying and completing acquisitions; (xvi) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvii) our failure to qualify as a REIT; (xviii) incurrence of taxable capital gain on disposition of an asset due to failure of compliance with a 1031 exchange program; (xix) our disclosure controls and internal control over financial reporting, including any material weakness; and (xx) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the Company's future results, performance, or transactions, see the section entitled “Risk Factors” in the Company’s Annual Report for the year ended December 31, 2024, and other risks described in documents subsequently filed by the Company from time to time with the SEC. While forward-looking statements reflect the Company's good faith beliefs, they do not guarantee future performance. Any forward-looking statement speaks only as of the date on which it was made, and we assume no obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-looking statements). Overview Highlights for the three months ended March 31, 2025 • Net income attributable to common unitholders of $14.7 million. • Core Funds From Operations ("Core FFO") of $52.0 million attributable to common unitholders. 27 • Signed a total of 231,000 rentable square feet of new, renewal, and expansion leases. Results of Operations The discussion below relates to our results of operations for the three months ended March 31, 2025 and 2024, respectively. Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 The following table summarizes the historical results of operations: Three Months Ended March 31, 2025 2024 Change % (amounts in thousands) Real Estate Segment Observatory Segment Total Real Estate Segment Observatory Segment Total Revenues: Rental revenue $ 154,542 $ — $ 154,542 $ 153,882 $ — $ 153,882 $ 660 0.4 % Observatory revenue — 23,161 23,161 — 24,596 24,596 (1,435) (5.8) % Lease termination fees — — — — — — — — % Third-party management and other fees 431 — 431 265 — 265 166 62.6 % Other revenues and fees 1,932 — 1,932 2,436 — 2,436 (504) (20.7) % Total revenues 156,905 23,161 180,066 156,583 24,596 181,179 (1,113) (0.6) % Operating expenses: Property operating expenses 45,060 — 45,060 45,060 — 45,060 — — % Ground rent expenses 2,331 — 2,331 2,331 — 2,331 — — % General and administrative expenses 16,940 — 16,940 15,972 — 15,972 (968) (6.1) % Observatory expenses — 8,118 8,118 — 8,431 8,431 313 3.7 % Real estate taxes 33,050 — 33,050 32,241 — 32,241 (809) (2.5) % Depreciation and amortization 48,735 44 48,779 46,044 37 46,081 (2,698) (5.9) % Total operating expenses 146,116 8,162 154,278 141,648 8,468 150,116 (4,162) (2.8) % Operating income 10,789 14,999 25,788 14,935 16,128 31,063 (5,275) (17.0) % Intercompany rent revenue (expense) 15,160 (15,160) — 16,067 (16,067) — — — % Other income (expense): Interest income 3,713 73 3,786 4,140 38 4,178 (392) (9.4) % Interest expense (26,938) — (26,938) (25,128) — (25,128) (1,810) (7.2) % Interest expense associated with property in receivership (647) — (647) — — — (647) N/A Loss on early extinguishment of debt — — — (553) — (553) 553 100.0 % Gain on disposition of property 13,170 — 13,170 — — — 13,170 N/A Income before income taxes 15,247 (88) 15,159 9,461 99 9,560 5,599 58.6 % Income tax (expense) benefit (206) 825 619 (113) 768 655 (36) (5.5) % Net income 15,041 737 15,778 9,348 867 10,215 5,563 54.5 % Private perpetual preferred unit distributions (1,050) — (1,050) (1,050) — (1,050) — — % Net income attributable to non-controlling interests in other partnerships — — — (4) — (4) 4 100.0 % Net income attributable to common unitholders $ 13,991 $ 737 $ 14,728 $ 8,294 $ 867 $ 9,161 $ 5,567 60.8 % Real Estate Segment Rental Revenue The increase in rental revenue was primarily attributable to higher operating and real estate tax expense escalations driving a $5.0 million increase during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This was partially offset by the net impact of acquisitions and dispositions made during 2024, which reduced rental revenue by $4.0 million. 28 Property Operating Expenses Property operating expenses was consistent primarily attributable to a $2.1 million decrease due to the net impact of acquisitions and dispositions made during 2024, primarily offset by increases in payroll costs and utilities. Interest Expense The increase in interest expense was attributable to the June 2024 issuance of Series I-K senior unsecured notes, partially offset by the February 2025 release of the First Stamford Place senior mortgage obligation, and March 2025 paydown of the Series A senior unsecured notes and revolver. Gain on Disposition of Property The gain on disposition activity for the three months ended March 31, 2025 primarily represents the mezzanine debt obligation which was deconsolidated in connection with the completion of the consensual foreclosure of First Stamford Place. See "Financial Statements - Note 3 Acquisitions and Dispositions" for additional details. Observatory Segment Observatory Revenue Observatory revenues were lower due to decreased visitation during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the shift in the timing of the Easter holiday that fell in April during 2025 as compared to March in 2024. Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make distributions to our securityholders and fulfill other general business needs. Based on the historical experience of our management and our business strategy, in the foreseeable future we anticipate we will generate positive cash flows from operations. In order for ESRT to qualify as a REIT, ESRT is required under the Internal Revenue Code of 1986 to distribute to its stockholders, on an annual basis, at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We expect to make quarterly distributions, as required, to our securityholders. While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of cash on hand, cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit facility. We expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital expenditures from cash flows from operations, cash on hand, debt issuances, and available borrowing capacity under our unsecured revolving credit facility. The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements. We expect to meet our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset sales. Our properties require periodic investments of capital for individual lease related tenant improvement allowances, general capital improvements and costs associated with capital expenditures. Our overall leverage will depend on our mix of investments and the cost of leverage. ESRT's charter does not restrict the amount of leverage that we may use. At March 31, 2025, we had $187.8 million available in cash and cash equivalents, and $620.0 million available under our unsecured revolving credit facility. At March 31, 2025, we had approximately $2.1 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.30% and a weighted average maturity of 5.3 years. Portfolio Transaction Activity On March 28, 2024, we executed a buyout of the 10% non-controlling interest in two of our multifamily properties located at 561 10 th Avenue and 345 East 94 th Street in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place debt and now own 100% of the ownership interests in these assets. 29 In September and October 2024, we closed on the acquisition of a portfolio of retail properties on North 6 th Street in Williamsburg, Brooklyn for an aggregate purchase price of $195.0 million. In September 2024, we entered into an agreement for the acquisition of an additional retail property on North 6 th Street in Williamsburg, Brooklyn for approximately $30.0 million. This acquisition is subject to customary closing conditions. The acquisition is anticipated to close in mid-2025. Unsecured Revolving Credit and Term Loan Facilities In March 2024, we closed a $715.0 million, five-year unsecured credit agreement which consists of a $620.0 million revolver and a $95.0 million term loan facility, each of which mature on March 8, 2029, inclusive of the extension periods. On March 18, 2025, we repaid the $120.0 million borrowings previously drawn on the Revolving Credit Facility. See "Financial Statements - Note 5. Debt" for a summary of our unsecured revolving credit and term loan facilities. Financial Covenants As of March 31, 2025, we were in compliance with the following financial covenants related to our unsecured facilities: Financial Covenant Required March 31, 2025 In Compliance Maximum total leverage < 60% 32.4 % Yes Maximum secured leverage < 40% 12.1 % Yes Minimum fixed charge coverage > 1.50x 2.9x Yes Minimum unencumbered interest coverage > 1.75x 4.4x Yes Maximum unsecured leverage < 60% 24.2 % Yes Mortgage Debt As of March 31, 2025, mortgage notes payable, net, amounted to $691.8 million. We have no mortgage debt maturity until April 2026. In April 2024, we worked with the First Stamford Place mortgage lender to structure a consensual foreclosure. On May 22, 2024, a receiver was appointed and we ended our management of the property. On February 5, 2025, the consensual foreclosure was completed, title of the property was transferred to the mortgage lender and we were released of our mortgage obligation. See "Financial Statements - Note 5. Debt" for more information on mortgage debt. Senior Unsecured Notes On June 17, 2024, we closed on the issuance and sale of an aggregate $225.0 million principal amount of notes, consisting of (a) $155.0 million aggregate principal amount of 7.20% Series I Green Guaranteed Senior Notes due June 17, 2029, (b) $45.0 million aggregate principal amount of 7.32% Series J Green Guaranteed Senior Notes due June 17, 2031 and (c) $25.0 million aggregate principal amount of 7.41% Series K Green Guaranteed Senior Notes due June 17, 2034. On March 27, 2025, the Series A senior unsecured notes matured and the aggregate principal amount of $100.0 million was repaid. The notes had a stated interest rate of 3.93%. See "Financial Statements - Note 5. Debt" for more information on senior unsecured notes. Leverage Policies We expect to employ leverage in our capital structure in amounts determined from time to time by ESRT's Board of Directors. In the evaluation of our level of indebtedness, ESRT's Board of Directors will consider a number of factors including the mix of recourse or non-recourse debt and cross-collateralized debt, mix of fixed or floating rate debt, and cost of leverage. ESRT's charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken. ESRT's overall leverage will depend on our mix of investments and the cost of leverage. ESRT's Board of Directors may from time to time modify our leverage policies in light of the then-current economic conditions, access to and relative costs of debt and equity capital, market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of ESRT's common stock and our traded OP units, growth and acquisition opportunities and other factors. 30 Capital Expenditures The following tables summarize our tenant improvement costs, leasing commission costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts). Office Properties (1)(2) Three Months Ended March 31, Total New Leases, Expansions, and Renewals (3) 2025 2024 Number of leases signed (4) 19 24 Total square feet 229,367 367,262 Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 66.43 $ 64.03 Weighted average annualized cash rent per square foot for previous leases 60.63 61.08 Percentage of new cash rent over previously escalated rents 9.6 % 4.8 % Leasing commission costs per square foot (5) $ 22.18 $ 19.86 Tenant improvement costs per square foot (5) 48.17 65.08 Total leasing commissions and tenant improvement costs per square foot (5) $ 70.35 $ 84.94 Retail Properties (2)(6) Three Months Ended March 31, Total New Leases, Expansions, and Renewals (3) 2025 2024 Number of leases signed (4) 1 1 Total square feet 1,181 2,458 Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 193.00 $ 400.00 Weighted average annualized cash rent per square foot for previous leases 183.74 378.97 Percentage of new cash rent over previously escalated rents 5.0 % 5.5 % Leasing commission costs per square foot (5) $ 63.04 $ 193.06 Tenant improvement costs per square foot (5) — 50.00 Total leasing commissions and tenant improvement costs per square foot (5) $ 63.04 $ 243.06 _______________ (1) Excludes an aggregate of 475,744 and 488,569 rentable square feet of retail space in our Manhattan office properties in 2025 and 2024, respectively. (2) The tables above exclude our multifamily properties. (3) Beginning in June 2024, the number of leases signed include "Early Renewals" which are leases signed over two years prior to the lease expiration. Amounts for number of leases signed, total square feet, leasing commission costs per square foot and tenant improvement costs per square foot have been adjusted to include the impact of early renewals for the three months ended March 31, 2024. (4) Presents a renewed and expansion lease as one lease signed. (5) Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid. (6) Includes an aggregate of 475,744 and 488,569 rentable square feet of retail space in our Manhattan office properties in 2025 and 2024, respectively. (amounts in thousands) Three Months Ended March 31, Total Commercial Portfolio 2025 2024 Capital expenditures (1) $ 8,764 $ 20,144 _______________ (1) Includes all capital expenditures, excluding tenant improvements and leasing commission costs. As of March 31, 2025, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $110.9 million for tenant improvements and leasing commissions. We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand and other borrowings. 31 Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund capital improvements through a combination of operating cash flow, cash on hand and borrowings. Distribution Policy We intend to distribute our net taxable income to our securityholders in a manner intended to satisfy REIT distribution requirements and to avoid U.S. federal income tax liability. Before we pay any distribution, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any. However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in order to satisfy REIT distribution requirements. Distribution to Equity Holders Distributions and dividends amounting to $10.8 million and 10.6 million have been made to equity holders for the three months ended March 31, 2025 and 2024, respectively. Stock and Publicly Traded Operating Partnership Unit Repurchase Program ESRT's Board of Directors authorized the repurchase of up to $500.0 million of ESRT Class A common stock and our Series ES, Series 250 and Series 60 operating partnership units from January 1, 2024 through December 31, 2025. Under the program, ESRT may purchase ESRT Class A common stock and we may purchase our Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by ESRT and us at our discretion and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate ESRT or us to acquire any particular amount of securities, and the program may be suspended or discontinued at ESRT's and our discretion without prior notice. As of March 31, 2025, we had $500.0 million remaining of the authorized repurchase amount. There were no repurchases of equity securities during the three months ended March 31, 2025. Subsequent to March 31, 2025 through May 7, 2025, ESRT repurchased $2.1 million of ESRT Class A common stock at a weighted average price of $6.90 per share. See "Financial Statements - Note 10. Capital." Cash Flows Comparison of Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024 Net cash . Cash and cash equivalents and restricted cash were $237.4 million and $385.3 million, respectively, as of March 31, 2025 and 2024. The decrease was primarily the result of the following changes in cash flows: Operating activities . Net cash provided by operating activities increased by $12.2 million to $83.1 million primarily due to increases in working capital. Investing activities . Net cash used in investing activities decreased by $29.2 million to $42.1 million primarily due to the prior year acquisition of non-controlling interests in other partnerships. Also during the current period, there was a $10.9 million decrease in capital expenditures and redevelopment in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Financing activities . Net cash used in financing activities increased by $211.7 million to $233.0 million primarily due to the repayment in full of the Series A senior unsecured notes and a pay-down on our unsecured revolving credit facility in the current period. See "Financial Statements - Note 5. Debt." Net Operating Income Net operating income ("NOI") is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by: (i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt, impairment charges and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole has historically increased or decreased as a result of changes in overall 32 economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly-timed purchases or sales. We believe that eliminating these costs from net income is useful to investors because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness. NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other companies that do not define the measure exactly as we do. The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI: Three Months Ended March 31, (amounts in thousands) 2025 2024 (unaudited) Net income $ 15,778 $ 10,215 Add: General and administrative expenses 16,940 15,972 Depreciation and amortization 48,779 46,081 Interest expense 26,938 25,128 Interest expense associated with property in receivership 647 — Loss on early extinguishment of debt — 553 Less: Income tax benefit (619) (655) Gain on disposition of property (13,170) — Third-party management and other fees (431) (265) Interest income (3,786) (4,178) Net operating income $ 91,076 $ 92,851 Other Net Operating Income Data Straight-line rental revenue $ 5,283 $ 3,061 Net increase in rental revenue from the amortization of above-and below-market lease assets and liabilities $ 798 $ 514 Amortization of acquired below-market ground leases $ 1,958 $ 1,958 Funds from Operations We present below a discussion of Funds from Operations ("FFO"). We compute FFO in accordance with the “White Paper” on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-off of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures. FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs. In addition, we believe FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT’s operating performance. We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value 33 of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results of operations, the utility of FFO as a measure of performance is limited. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs. FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to another. Modified Funds From Operations Modified Funds from Operations ("Modified FFO") adds back an adjustment for any below-market ground lease amortization to traditionally defined FFO. We believe this a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under GAAP, which stems from the third quarter 2014 acquisition of two option properties following our formation transactions as they carry significantly below market ground leases, the amortization of which is material to our overall results. We present Modified FFO because we believe it is an important supplemental measure of our operating performance in that it adds back the non-cash amortization of below-market ground leases. There can be no assurance that Modified FFO presented by us is comparable to similarly titled measures of other REITs. Modified FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Modified FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Core Funds From Operations Core FFO adds back to Modified FFO the following items: Interest expense associated with property in receivership and loss on early extinguishment of debt. The Company believes Core FFO is an important supplemental measure of its operating performance because it excludes non-recurring items. There can be no assurance that Core FFO presented by the Company is comparable to similarly titled measures of other REITs. Core FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Core FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO: Three Months Ended March 31, (amounts in thousands) 2025 2024 (unaudited) Net income $ 15,778 $ 10,215 Non-controlling interests in other partnerships — (4) Private perpetual preferred unit distributions (1,050) (1,050) Real estate depreciation and amortization 47,871 44,857 Gain on disposition of property (13,170) — FFO attributable to common unitholders 49,429 54,018 Amortization of below-market ground leases 1,958 1,958 Modified FFO attributable to common unitholders 51,387 55,976 Interest expense associated with property in receivership 647 — Loss on early extinguishment of debt — 553 Core FFO attributable to common unitholders $ 52,034 $ 56,529 Weighted average Operating Partnership units Basic 267,073 264,562 Diluted 269,529 267,494 Factors That May Influence Future Results of Operations Leasing Due to the relatively small number of leases that are signed in any particular quarter, one or more larger leases may have a disproportionately positive or negative impact on average rent, tenant improvement and leasing commission costs for that period. As a result, we believe it is more appropriate when analyzing trends in average rent and tenant improvement and leasing commission costs to review 34 activity over multiple quarters or years. Tenant improvement costs include expenditures for general improvements occurring concurrently with, but that are not directly related to, the cost of installing a new tenant. Leasing commission costs are similarly subject to significant fluctuations depending upon the length of leases being signed and the mix of tenants from quarter to quarter. As of March 31, 2025, there were approximately 0.7 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 7.9% of the net rentable square footage of the properties in our commercial portfolio. In addition, leases representing 4.7% and 6.5% of net rentable square footage of the properties in our commercial portfolio will expire in 2025 and in 2026, respectively. These leases are expected to represent approximately 5.0% and 6.4%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. Further, our revenues and results of operations can also be affected by downtime after space is vacated and the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant. Observatory Operations For the three months ended March 31, 2025, the Observatory hosted 428,000 visitors, compared to 485,000 visitors for the three months ended March 31, 2024, a decrease of 11.8%. Observatory revenue for the three months ended March 31, 2025 was $23.2 million, a 5.8% decrease from $24.6 million for the three months ended March 31, 2024. The Observatory revenue decrease was driven by lower visitation levels due to the timing of the Easter holiday that fell in April during 2025 as compared to March in 2024. Observatory revenues and admissions are dependent upon the following: (i) the number of tourists (domestic and international) who come to New York City and visit the Observatory, as well as any related tourism trends; (ii) the prices per admission that can be charged; (iii) seasonal trends affecting the number of visitors to the Observatory; (iv) competition, in particular from other new and existing observatories; and (v) weather trends. Outlook Year to date in 2025, ESRT has benefited from solid leasing activity and Observatory performance. We believe the global economy, including the real estate sector, currently navigates an environment of uncertainty around inflation, interest rates, questions on the direction of capital markets, risk of recession and geopolitical unrest. There have been concerns about the softening of the office real estate market in particular, amidst refinancing challenges of existing low interest rate loans and associated reduced new loan availability and increased costs of loans and related increased expectations of equity returns, coupled with the gradual pace of return-to-office and its impact on the physical utilization of space and asset valuations. Additionally, the risk of a global economic recession could impact the number of visitors to the Empire State Building Observatory, as well as our pricing power. Despite this global economic backdrop, we believe that ESRT is in a good competitive position with diversified drivers of income across office, retail, multifamily and the Empire State Building Observatory. ESRT’s New York City-focused portfolio is modernized, amenitized, well-located and energy efficient, with indoor environmental quality, competitive rental rates and strong leased percentages. We believe our business is further fortified by the continued performance of our Observatory attraction. In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and good access to liquidity as set forth herein. The absence of near term debt maturities provides an added degree of security. This provides us optionality to execute on capital recycling, acquisitions, and buybacks. As we navigate these uncertain times, we remain prepared for various challenges and situations. Critical Accounting Estimates Refer to our Annual Report for a discussion of our critical accounting estimates. There were no material changes to our critical accounting estimates disclosed in our Annual Report. 35